George Osborne, like the Lib Dems and Labour, simply refuses to acknowledge
how deep a hole the country is in

The financial crisis in Cyprus deepened yesterday, confirming George Osborne’s warning in his Budget about the vulnerability of the UK economy to outside influences, and especially to turmoil in the eurozone. But the Chancellor will have been relieved that, unlike last year, his measures did not unravel within hours of their announcement. If anything, the Budget’s most eye-catching proposals – aimed at reviving the housing market and taking more people out of tax altogether – were well-received by voters, if not by economists or the markets, which were largely unmoved.

A Populus poll found strong public support for the decision to raise the personal income tax allowance to £10,000 next April and well over half backed plans to underpin new mortgage lending. The political calculations behind the Budget, therefore, may well pay dividends, in the short term at least, thereby helping to restore some of Mr Osborne’s battered credibility.

However, there was also bad news: the economics underpinning the Chancellor’s statement, gloomy enough when presented on Wednesday, were yesterday revealed by the Institute for Fiscal Studies to be even more harrowing. In its post-Budget report, the IFS suggested that the borrowing figures would have been even worse had Whitehall departments not underspent by almost £11 billion. This allowed Mr Osborne to say that the deficit was not as high as last year’s. At £120.9 billion it was £100 million less – a difference dismissed by the IFS as “an accounting error”. The Treasury denied any sleight of hand, but its attempts to improve presentation have merely put off the day of reckoning: from the 2015-16 fiscal year onwards, there would have to be either big tax rises or deeper cuts in spending to pay for infrastructure spending and meet an array of new social commitments, such as child care assistance.

We are left with the impression of a political establishment that simply refuses to acknowledge how deep a hole the country is in. Mr Osborne is reluctant to do so because it will invite questions as to why he will not (or cannot, because of the Liberal Democrats) take much more radical action than we have seen so far. And Labour is intellectually incapable of conceding the true scale of the crisis because it doesn’t want to draw attention to the fact that it is largely responsible for it. The voters are not fools: they know our economy is in a mess and will give proper credit to a leader or a party that is honest with them. Until someone finds the vision or the guts to do this, the necessary reforms to the way our public sector works and is funded will not properly be addressed.